slides in the coming days. Operator, can we open the call for Q&A?

We will now begin the question and answer session. To ask a question, you may press star, then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then two. At this time, we will pause momentarily to assemble our roster. Our first question today is from Vikram Kasavawatla with Baird. Please go ahead.

Thanks for taking the questions. My first one is a higher level question on the industry. You know, when we look at the box office trends this year, I think there's been a few examples where existing proven IP has continued to perform very well. But I think there's also been some examples where proven IP has struggled or at least struggled relative to broader expectations. I'm curious to hear your perspective on some of the factors that are influencing the success and relevance of IP in today's market. And the real question behind that is, you know, when we look at your film slate over the next few years, I think there's several examples of sequels or revivals of existing films and franchises. As you've gone through the process of greenlighting these ideas, what are some of the factors that have given you confidence in the health and the relevance of the IP that you're working with and the likelihood of your film slate being successful in aggregate? And I realize it's a bit of a high-level question, But it'd just be great to hear your thoughts on how the film slate is positioned relative to some of the broader industry trends that we're observing.

No, they're going to miss Adam. I appreciate the question. Obviously, each individual, the metrics that are used to determine what makes a film a good idea or a good bet include box-oply opportunities that come with it. As it relates to Lionsgate specifically, the lens that we're looking at with these projects is does the movie demand or when we invite the audience, do they get excited? And we have a very – our digital team is, I think, top of class in making sure that we are constantly listening to our fans. And so you could pick any of the titles, large or small, across our slate for the coming years. And I would tell you that the characters that the stories are focused on or the storylines that are being advanced are answering questions that have come from the prior films. So making each of those films for the right thing, while nothing is, as I said, every single one of the films on our slate has more than met the threshold criteria for myself and John and the company to feel great about what we're doing.

Okay, great. Thank you, Adam. I appreciate the comments there. Separate from that, I also wanted to follow up on the licensing agreement with Netflix for the Power Universe. Can you talk more about the potential impact of that deal and what that could represent for the value of your library? And perhaps as part of that, if you could just talk about the broader health of your library business today and how that revenue contribution can trend from here. That would be great. Thank you. We'll have Jim Packer answer that.

First of all, it's just a really great time right now to have library series, especially high-profile signature franchises in the marketplace. I'm sure you've seen a couple of the announcements that are out there. This particular deal has a couple of strategic wins. First of all, power has been strong internationally, but this is going to be transformative for the show and for the franchise. Netflix has an international footprint, and the entire franchise is going to grow significantly, I think, because of that. And then we also try to set ourselves up for the next cycle, too. So we only did a three-year deal. So domestically, we'll have Kanan and Force available for the first time in the U.S. for Espot. Legacy available. These are turning. This is a new Black. Mythic Quest, Mad Men post-HBO. Another global bite.

Okay, great.

The next question is from Omar Magias with Wells Fargo. Please go ahead.

Thanks for the question. John or Michael, I just wanted to see if you could give us an update on the M&A front. There's been several press reports indicating, you know, parties' interest in Lyon, including Ballora and Banigy, among others. Just wanted to get your updated thoughts on how you're thinking about the consolidated media environment and where Lyon sits within the ecosystem.

Thanks for the question. in spite of what the headline suggests, we haven't engaged in any substantive vote. Given the strength, the scale matters more than ever in this environment, and that precisely becomes more relevant over strategic optionality, and that's something we're focusing on every season.

That's very helpful. And maybe just shifting to the earnings power of the business. I mean, you guys just started the year very strong, clearly have a lot of momentum on the motion picture business. The TV side, you just did the likes to deal with Netflix that you talked about and have a very robust backdrop, backlog. So just curious, how should we think about the earnings power as we look ahead into 27 and beyond with all the pieces, putting it all together? Thank you.

So, you know, I think we've certainly been out there this year, actually, And, you know, we're well on our way to a really strong year. I think the momentum should continue into 28. You know, we'll see nice growth in what we're covering as our base case. I think we could have a really strong year in 28 as well.

Thank you. The next question is from Brent Penter with Raymond James. Please go ahead.

Hey, good afternoon, everyone. A few questions. First one on three arts. You talked about the value of that business. Can you update us on the strategic review process there? Is that still ongoing? And then just can you update us fundamentally on that business? It sounds like some positive trends, but anything you can say there.

Brent, it's Brian Weinstein speaking. Thanks for the question. You know, look, to take it in parts first, you know, we are focused and remain focused on potential transactions, but not ones that are purely financial. There's some interesting strategic elements in some of the deals we're looking at, so we continue to explore those conversations and find some interest in that. I'd say, you know, operationally, we're pleased with the business, the trajectory of the business. You know, beyond the core, as we've talked about over time, we're seeing nice momentum, real momentum in new verticals like sports and creator. That's not our roots, but that's where we see lots of excitement. And, you know, in sports we've got, you know, activity and Taylor Rooks and, you know, new clients like Colston Loveland and Sophie Cunningham with others. It just demonstrates the strength of the platform and opportunity to develop content around those relationships. So that's how we think about the sort of new areas. And then getting back to the core, you know, at the same time, you know, our bread and butter, our collaboration between Lionsgate and Three Arts has really never been stronger. So we, you know, we have projects like The Hunting Wives and real real socialistas, the award show, and the algorithm, and Medal of Honor, and others that's deriving about, you know, roughly 30 shared projects between Lionsgate and Three Arts. And then, look, finally, just talking about the industry and the asset class, the team's equity buying more of that asset, just reinforce what we know, which is these are scarce businesses with premium multiples and, you know, scale of talent representation, businesses like Three Arts remain a good place to be. So overall, I hope that answers it, but that's how we feel.

Yeah, it does. Thanks, Brian. And then on Michael, now that we're seeing the strong results from that movie, I think there's even more anticipation about the sequel. So just any updates on maybe where that is in process and potential timing? And then what are the puts and takes on the sequel in terms of the economics? I think maybe some of the film from the first movie can now be used for that. So anything just in terms of budget or cost that you can talk about.

Yeah, Brandon, it's Adam. Thanks for the question. We are hard at work on making sure that we can put together a sequel that is worthy of the success and the enthusiasm that the first movie generated, and we're fully engaged with everybody. While we are not ready to announce everything at the moment, I would tell you that we are targeting this year and early next and think that somewhere between the end of calendar 27 and the first half of calendar 28 would be a current thought of roughly where the movie could be sure to be incorporated where we can deliver at the right price the biggest, best sequel. That is what the audience is going to want and deserve after the experience we gave them the first time. So we're not ready to give guidance on the budget yet, but we certainly will be able to take advantage of some stuff that we previously shot, as I had said before.

All right. Thanks, Adam. And then final question for me, the Paramount-Warner Brothers deal now on pause and the trial not scheduled until March. I guess what's the view from Lionsgate on that situation? How does it affect you kind of being in limbo here? And then if Lionsgate, you know, are you all better off if that does or doesn't close?

You know, be investing very heavily in content, whether it's 30 or whether it's Paramount Plus. I would say for us, better for us in terms of sold them a new television show. We hadn't been doing that much with Paramount. We hadn't been doing that much with HBO. So I'm already seeing signs of it. I'm already talking to them about that would be good for us and that would be good for the industry. And I would say overall, the more movies that are in the market, I guess I would say I'm in favor.

The next question is from Sean Diffley with Morgan Stanley. Please go ahead.

Thanks very much, too, if I may. First, you talked about a paradigm shift in the TV demand backdrop. I was hoping you could elaborate on that a bit. What would you say your special sauce is in terms of why your content is resonating so much with the streamers? And then second, your utilization of AI. I know you guys have a deal with runway. way, maybe you could just talk about how you're using AI to energize and leverage your IP and what kind of cost savings you envision or what kind of creative unlocks you're seeing.

Hey, it's Kevin speaking. Just to talk generally about the state of the month, our secret sauce, non-traditional ways in Dinks, the great library, yet we have 20, some of the deficiting that we're doing over a slower cadence.

Let's add that Kevin is doing a great job getting people to move to places that other people don't really want to go to, like Serbia, like Ireland, and like New Jersey.

Let me take the AI questions. Michael, operations, very efficiently, and partners leading our project.

The next question is from David Joyce with Seaport Research Partners. Please go ahead.

A couple questions. First, I wanted to ask a bit more on the power deal. Granted, Netflix gives much more global exposure than stars would get. Well, since they're technically just in the U.S., but what is the benefit to STARS here? Anything directly financial, or is it just like a catch-up platform and helps with the branding? And then secondly, I wanted to ask about the Michael movie. How should we think about the construct of ultimate profitability? Over what period do you kind of think about that? How does the factor of the family being involved impact that? Just wanted to try to drill down on the math there.

Yeah, I think the success that we have as the owner, we want them to do it when we have a win on something. That's good. It's going to be good for them, and I would say sign together. And as you probably know, they're the window for our motion pictures, and they are the – so I think, again, we've got a great relationship, and, again, we're happy always for theirs. and the filmmakers' profit participation, and there was nothing unusual in this particular case.

We also were sharing both the financial responsibility and the upside with our partners at Universal around the rest of the world, say, for Kino in Japan. And so I think you can think of this as pretty traditional. Obviously, it was a big movie. It was an expensive movie. The marketing and distribution globally was handled very efficiently. Roughly a 10-year cycle, obviously, it's more meaningfully. And not only with the great theatrical performance we had, but the movie was a top performer in PIVOD. We're seeing incredible adoption of the movie now as it's moving into its more downstream opportunities. And we think there's going to be a really nice long tail on it. But there is nothing unusual about how this movie was constructed in terms of how the profit is being shared amongst all the participants.

Appreciate the color. Thank you.

The next question is from Matthew Harrigan with Stone X. Please go ahead.

Thank you. Reaching back to early kind of formative Lionsgate, you know, John used to talk a lot about the superior multiple you were getting on eventuals on films relative to the box office rentals. It was pretty, pretty striking. I know you've got a huge problem now because you've got some billion dollar box office films, maybe the second Michael, maybe Naruto and certainly the two resurrection movies. So presumably that that's harder to do. But do you think that for yourselves and for the industry, you still have a positive trend on that? And, you know, a few of the movies, I mean, I think Resurrection in particular should just have phenomenal library value. Do you think in a couple of years you're going to get a step function, you know, lift in the library OCF just on account of the number of hits you're having? I know people are concerned about the roll-off in three years, but it looks like some of the pressure there could get offset by growth in the library revenues from both the creative side and deployment of new technologies and, obviously, penetration of new technologies, both in the U.S. and overseas.

If I get downstream, if you've got a billion-dollar movie, you know, obviously, you know, it's going to be a bigger number downstream, but it may not be a bigger multiple number downstream. but I would say we'll take that. We'll take as many billion-dollar movies and television shows as we get. You've seen this. We've seen this every time. We've talked about it on these calls. Hunger Games coming out, right? You know, you're going to see a huge lift that we're going to get across every ancillary platform for Hunger Games. Now, you bring up technology. I've never seen, through my, you know, for mental benefit and more additional lift for good content. And, you know, Kevin mentioned it. Adam mentioned it. We have amazing content. It's one of the reasons we keep putting slides up now to remind people of intellectual property and recurring intellectual property is everything I put up on the site. Maybe people don't realize that every single one of those titles, I think they're over 40, are things that actually we are currently working on some version of, if not more than one version of. But in any case, I have never seen any technological revenue of good library content, and I believe that to be the case today.

And actually, just as a quick follow-on, this is a little nerdy, but 8K, I mean, AI in particular, you can render pretty much the entire library, I imagine, in 8K. I mean, do you think that's something that will have some appeal over time? I mean, every year at CES, you know, it looks beautiful, and obviously the commercial translation has taken more time than people thought. Going back to the 21, you know, Tokyo Olympics, I know on the sports side, obviously it's much harder to do than on what you do on movies and TV, but still interesting, pretty immersive.

I think, again, we have to, as Michael said, we have to make sure when we're doing generative AI to work really closely with, you know, with the talent. We always see these as tools that enhance the work that we do with talent. I could say we're experimenting and playing with it so many different ways. It's certainly using it significantly pre-production, post-production. We're using it now. I just looked at an example where we've got to actually manage a three arts and they do these podcasts that have never been videoed. And we're actually creating video versions of them. And they're really quite use cases that we're playing with. And, you know, again, a year from now, it's going to be a whole different world there. But I can tell you it's saving us money. It's making us more efficient across the board. Every single employee here at this company is trained in AI and is using a 95% adoption right now. You know, every day we find them.

And I would say, one other thing I would say on the 8K, I do think every time you've seen a new format come around, you have a lot of people that will buy those formats. We have a thing called Lionsgate Limited where we do 4K. So I don't anticipate that we will have any problem at all with the kinds of movies that Adam is producing. you know, keeping that pipeline full for the next generation of technology.

Beautiful. Thank you.

The next question is a follow-up from Vikram Kassavobotlo from Baird. Please go ahead.

Yeah, hey, thanks for letting me ask a couple more questions here. Maybe first, I want to follow up on the upcoming Hunger Games film. Can you talk about the initial reception to the marketing efforts there and some of the other data points you're monitoring to inform the potential performance of that film? And maybe related to that, how is this impacting the library demand for the previous films in that franchise? And how meaningful of a contribution can that be to the business this year?

Yeah, it's Adam. I'll take the first part and then I'll pass it on to Jim. Look, I think when we came out with The Free Public about the fact that it sat just behind Michael as the most viewed trailer in the history of the company, we have seen that we have a very engaged audience into the fold. meaningfully outsold the prior book amongst fans of The Hunger Games for a long period of time and this movie is setting about with an extraordinary cast and obviously a filmmaking team with an incredible cast and I will also tell you that it is one of the best testing movies we think we have all and I think this particular situation we have literally every single month

planned out between the film, fandom and build the excitement for the brand Overall, you know, I think you see overall our reported 12-month trailing is always continuing to go up, partly due to these new franchises coming into the marketplace, whether for transactional or for licensing. And so I think you'll continue to see strength in our trailing 12th because.

Okay, great. Thanks for the comments there. And maybe just a couple other follow-ups on the motion picture segment. You called out the ancillary performance of the housemate as a contributor to the performance this quarter. How much more runway is left for that as a tailwind to your performance in fiscal 27? And then maybe related to that, can you talk about kind of the runway for contribution from Michael, given the strength that you're seeing in the windows post the theatrical run?

Yeah, I mean, there's definitely a lot of continuing insular revenues on Housemaid. I will tell you, remember that the major contribution were the ensuing three quarters of the year. So, you know, looking ahead, we've got Hunger Games coming up and great about that and how we finish out the year. You see a lot of backlog that's going to be flowing through as well. So we're in a position of strength.

And then just the last question for me, Jimmy, you talked about achieving your mid four times target on leverage earlier than you expected. Can you just talk more about how we should see the leverage trend going forward and some of the key factors that will allow you to continue delevering the balance sheet?

I expect continuing deleveraging, but I would say we're going to continue, you know, a potential put in Q4, as we previously talked about. That would be about the case. We quickly deleverage times leverage and then below three after that.

I appreciate the color.

This concludes our question and answer session. I would like to turn the conference back over to Nile Shah for any closing remarks.

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